Wednesday, December 30, 2009

Year-end is a natural time for reflection on events of the past year and a time to plan goals for the year to come.

As I think back on 2009, I am struck by a few observations.

The year began with the macro overhang of the economy and the recent failings of the US financial markets. The world lost its orientation and no one knew if we would continue to free fall or if we had hit bottom and that a recovery was the next natural phase. The ability to navigate is premised on the ability to orient - to know where one is in relation to one's destination. In a global panic, bearings are not possible and decision makers went into paralysis and they scrambled to reorient themselves and to know which was up and which way was down.

Start-ups depend on future growth for their success - investors, customers, management, and employees must believe in a future world where demand remains robust and where future profitability validates today's investment decisions. In a world with an uncertain future, projections that demand future growth become at best optimistic and at worst insane. Accordingly, the land of start-ups began 2009 with no sense of future direction and free from data points to help suggest a rosy tomorrow would dawn.

With the worst economic conditions since the 1930's as the backdrop, the new year began with tremendous uncertainty, and even worse, an overhang of pessimism in a world (start-ups) that demands optimism.

While the macro picture loomed, the micro conditions for me and Widgetbox were important to revisit. No one can control the economy, but each executive is able to control and influence their own companies - burn rates, employee morale, company direction, strategy, etc.

At Widgetbox, we made some hard but important decisions with respect to how to navigate the "fog." First, if we use financial option value as a framework...the value of an option is a function of volatility and time. The more time and the more volatility, the higher the value of the option. If we think of every start-up as a financial call option, we then can maximize value by extending the duration of the option, while the volatility is self-evident. As such, we made difficult decisions to reduce headcount and to extend the life of our company and it's option on the future. We let go most of our business people and kept the engineering team largely whole with a skeletal layer of business folks.

Second, we focused on process optimization. Why process? Many start-ups work on the random acts of heroism theory, whereby people work extreme hours to achieve productivity and innovation. As a three-year old company, we needed to find a way to drive innovation and productivity with both a reduced head-count and the need to preserve goodwill and morale. As such, we moved to a formal scrum process, weekly sprints, and a social contract. The contract stated that we would release every Tuesday and that the sprint would be locked down and no new stories would be added to the sprint without the CTO or CEO's approval. The process investment supported a huge increase in reliability, innovation, and morale and we avoided the burnout that comes from constant changes to development priorities and schedules. We shipped every week of the year and built a product organization that became incredibly nimble and productive.

Third, we focused on monetization. While perhaps an obvious focus area, we were born in an era where platform investments were tied to non-revenue metrics and the basis for value was in uniques, impressions, and other non-financial benchmarks. We knew that to survive we would need to turn our sights on aligning our product investments, features, and users with a viable commercial model capable of delivering venture returns. From a modest run rate in January, we began to grow our revenues steadily month over month and we set a collective goal to 10x the business by year-end. The whole team's mindset shifted to embrace the goal and every employee began to add ideas, suggestions, and value vis a vis how to best monetize the business. Over the year, we added a billing system, tiered our products and services, became adept at funnel optimization, conversion analysis, data-driven management, and how to work on making our business predictable and scaleable.

Fourth, we matured our thinking on strategy from one in which we would speculatively project "good" ways to grow revenue to pull-based strategy analysis in which our customers - now over 14,000+ - provided us the ideas, feedback, and inspiration with which to invest in products, features, and markets. While the world was disoriented, we grew in confidence with respect to our direction and how we would navigate our growth and future direction.

In summary, we extended our runway by reducing burnrate (adding 18 months), we invested in process to support scaleable execution and progress, we committed to monetization and made it a company-wide mandate, and finally, and thankfully, customers were able to provide us the direction we once looked to the whiteboard to provide.

As the macro world improved, we are well positioned - as a company and culture - to leverage that the returning sense of optimism. Customers have helped us identify a new line of business - rich media advertising - that is perfectly suited to our technology. ClickTurn.com is our latest product initiative and one in which I hope to tell you much more about as 2010 begins.

While the world started 2009 in a daze, we were very lucky to have committed employees, patient investors, and customers that helped us maintain our confidence in a better tomorrow. It was by no means an easy year, but one in which the entrepreneurial maxim regarding the need for perseverance and luck hit home.